Climb every mountain! Ingredients we need for TOD in Washington

I’ve spent a fair amount of time in the last several months listening to people tell me all the things they think we need to facilitate Transit Oriented Development (TOD) in these parts. It’s part of a longer set of discussions going back into the 90s when people asked, in a similar way, “how do we implement the Growth Management Act?” Here’s my quick answer; we have all the ingredients we need to facilitate leaps and bounds toward TOD. What we’re missing is leadership. Second, we could make TOD happen without as much leadership if we had significant changes to our constitution, city charters, and tax codes.

What I am going to do is cover the things and agency would need to set out on a massive TOD effort. I’ll include the pieces we already have and where they are. Then I’ll explain my leadership comment. And a caveat: these are notes. If I am wrong or missed something, please comment.

Levy Taxes

The ideal TOD agency would be able to raise significant revenue on its own by levying sales, property, and payroll taxes. You get the first two, right? But payroll taxes? Yes, you read that right. In order for any agency to generate the kinds of revenue needed for significant capital investments, right-of-way acquisitions, land purchases, and operations of connecting transit infrastructure (trollies, jitneys, shuttles etc) it would have to be able to raise taxes on its own. TriMet in Oregon actually raises huge money, most of their $211 million budget, from a payroll tax. Taken together these three sources would get the job done.

Who already has it? 

Sound Transit raises most of its money from sales tax and local governments fund transit from sales taxes. Local government can already raise property taxes as can the Port of Seattle and other benefit districts and taxing districts created by the legislature. While uniformity is a problem with property taxes, the constitution allows for the creation of any number of taxing and benefit districts that could raise revenue for TOD.

How do we get it for TOD? 

The legislature would have to pass legislation to allow a TOD agency to raise money this way. The payroll tax is doable, today, as long as it’s not an income tax. TriMet’s payroll tax is a percentage, but a TOD agency could just charge a flat fee like the head-tax that was eliminated by the Seattle City Council.

Power of condemnation and eminent domain

Condemnation, the ability to force a party to sell their property at a court appointed price, would be essential for a TOD agency. Stubborn property owners holding out for a big payout from a deep pocketed TOD or transit agency or local government means unacceptable costs for acquiring property. All it takes is a whiff that TOD is happening and one hold out can flummox progress. There’s no doubt that a TOD agency would have to have the condemnation hammer to assemble critical parcels in areas where the market pushed prices up, especially in light of new development.

Who already has it?

Counties, cities, ports, and public agencies seeking right of way for infrastructure like roads and sidewalks. It would be a challenge, under current law, to condemn property to assemble parcels for redevelopment.

How do we get it for TOD?

We may need a constitutional fix because it is a creaky document that still reflects 19th century values. Here’s what Article 1, Section 16 says about eminent domain.

SECTION 16 EMINENT DOMAIN. Private property shall not be taken for private use, except for private ways of necessity, and for drains, flumes, or ditches on or across the lands of others for agricultural, domestic, or sanitary purposes

It needs to be fixed.

SECTION 16 EMINENT DOMAIN. Private property shall not be taken for private use, except for private ways of necessity, and for drains, flumes, or ditches on or across the lands of others for agricultural, domestic, or sanitary purposes, of for the purpose of public transit. 

There, I fixed it. The legislature would have to write and pass implementing legislation to set the stage for eminent domain for a TOD agency, but this would make it very clear that there would be no constitutional challenge.

Zoning and land use

Ideally, a TOD agency would be able to act on its own to get the right zoning around a station. Giving this authority to a TOD agency would short circuit the local politics that can hobble efforts to up zone areas. It make sense for regional investment to come with regional land use strategies. That isn’t happening now in the region. Local governments are squabbling over alignments, zoning, and the value of transit in the first place. Local city governments are blowing it big time.

Who already has it?

Counties, cities, and towns are allowed (RCW 35.63.080) to

regulate and restrict the location and the use of buildings, structures and land for residence, trade, industrial and other purposes; the height, number of stories, size, construction and design of buildings and other structures; the size of yards, courts and other open spaces on the lot or tract; the density of population; the set-back of buildings along highways, parks or public water frontages; and the subdivision and development of land.

How do we get it for TOD?

Fortunately when it comes to zoning there is no constitutional issue. The legislature devolves broad authority on local government to regulate for health and safety. There isn’t any reason that I have found for the legislature to similarly devolve more explicit authority to regulate land use to a TOD agency. The beauty of this is that local councils could kick, scream, and fight with each other all day, but the land use changes would happen with or without them.

Tax Increment Financing and Land Value Tax

I’ve touched on these ones already a little bit. Both Tax Increment Financing (TIF) and Land Value Tax (LVT) are arcane tools to leverage increases or potential increases in property values for specific outcomes. In the case of TIF the purpose is value capture, using future increases in value to pay back money a local government borrows today for improvements to public infrastructure. In the case of LVT, the goal is to create incentives  for property owners to develop property they might otherwise leave undeveloped.

Who already has it?

In Washington nobody has access to either of these tools. Because of the way we levy taxes, using a budget based not rate based system, we can’t use increases in value in Washington to generate revenue or incentivize the actions of private property owners. Simply put, we generate our tax revenue based on how much a taxing district needs, not on a set rate on property values. That means some unusual outcomes, including the fact that property taxes can go down when property values go up.

How do we get it for TOD?

We need to amend the constitution and change Article VII which creates a uniformity requirement for taxation among classes of property. Real estate is a class of property, and the way we get to uniformity is by distributing the levy of taxes uniformly across all the value in a taxing district. This is a tall mountain to climb. But we have to get this done.

Public Credit: Borrowing and Lending

A TOD agency would benefit from being able to borrow money either by issuing General Obligation (GO) Bonds or revenue bonds. Borrowing money for a TOD agency would be just like borrowing for anyone else, the cost of the loan in interest charges would depend on the risk the lenders take. Additionally, it would help if a TOD agency could lend its credit to other agencies or to private parties to facilitate development.

Who already has it? 

Local governments and just about any organization can borrow on the bond market. A loan market just needs someone who needs money and someone who has money to lend. The main issue is risk and the ability to make payments on the loan. Sound Transit and other transit agencies probably routinely borrow on some level. Public Development Authorities (PDAs) also have the ability to borrow using their own credit or the credit of local government. Sadly most PDAs (including King County’s 4Culture) aren’t using this tool for development. Nobody can lend credit because, once again, the constitution doesn’t allow it.

How do we get it for TOD?

If the legislature was to create a TOD agency it could borrow. The question would be how expensive the interest rates would be. I’m not a finance expert, but it’s likely that a solid agency with good management and good portfolio of real estate, and the powers I’ve sketched out could get a pretty good deal. Revenue bonds would be an option if there was a revenue stream from property, sales, or payroll taxes and that would help lower the costs.

Lending of credit is another tough ask, and it may not be necessary. But imagine if a TOD agency could lend its credit to back loans for improvements to private property, or loan programs for small businesses in TOD areas. The TOD agency probably shouldn’t become a bank, but it could make loans for things that banks might not want to issue loans for like storefront improvements or bridge loans for businesses that need to relocate. This would require an amendment to Article VIII of the state constitution.

Leadership

Here’s the toughest one of all, leadership. This means actual human beings with power and access to money and influence who are willing to risk their own political well being and perhaps their reputation. It means people who are willing to put people in the future, not yet here, and not yet born ahead of the narrow interests of people shouting at them right now. Finding people who already have power and who are willing to give it up to make all this happen in exchange only for the hope that it might happen in the future is going to be a challenge.

Who already has it? 

One example of a guy who has this instinct is Tom Tierney, who beautifully blunted the complaints of locals yelling about changes coming to Yesler Terrace at the Equitable Growth Dialogues. Tierney, the executive director of the Seattle Housing Authority, said, essentially, that he also has to consider the people that will live in Yesler Terrace in the future, not just the people living there now.

There are other leaders out there who are willing to stand up to NIMBYs and nervous nellies when it comes to assembling the political will to make the big changes TOD needs. But they need encouragement and those of us who support political candidates need to get tougher on politicians who talk big about TOD but don’t deliver.

How do we get it for TOD?

I think the right people could assemble the authority we’ve already got to make TOD happen. One big problem is somehow getting local city councils some immunity from the pressures they face from local interests. It may be that we need a generation of political leadership at all levels of government with the determination to make these things happen at the local, city level. Cities really can do almost all of these things. Land use is a powerful tool and it’s something they already have. But right now they aren’t using it well.

So there it is. All tall order I know. And a tall mountain. But it is one worth climbing.

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This entry was posted in 1. Federal, state law, or legal decisions, 2.Local change, 4. I don't understand, Uncategorized. Bookmark the permalink.

17 Responses to Climb every mountain! Ingredients we need for TOD in Washington

  1. Eric says:

    I’m not sure how your proposed eminent domain amendment would change anything. The state constitution currently bans eminent domain takings for private use. Public transit is, by definition, a public use. It is already legal to use eminent domain to build train tracks and other infrastructure that would be used for public transit.

    It sounds, however, like you want to expand the power to include the ability to take land for the purpose of private higher-density redevelopment in the vicinity of public transit. This I cannot support. If a developer wants to take my house, tear it down, and replace it with a high-rise apartment building, he should have to pay me a price that we can both agree upon. That price may be somewhat higher than the value of the house itself, but I fear the eminent domain process would shift all of the profit in the deal to the developer and all of the inconvenience to the previous owner.

  2. Sotosoroto says:

    This isn’t China. We can’t have a government condemning houses just to build bigger buildings. Even if the supreme court ruled oddly on that Connecticut case, let’s still try to keep a modicum of property rights, okay?

    I’m quite comfortable with Sound Transit pressing hard on cities to upzone around stations, but let’s leave control of the property in the owners of the property. If they want to sell, all right. If they don’t want to sell, fine. We probably get something that looks like Alki & Harbor Ave, with a mix of small houses and tall apartment buildings, but that adds character.

  3. BlancheattheDubois says:

    A little bird was telling me earlier this evening that Sound Transit actually has three potential tax sources: sales tax, the RTA excise tax on cars, and an employee tax which they haven’t used because it’s politically too hot to touch. Don’t know if that’s the same as a payroll tax. Ironically, due to sub-area equity, South King County is losing transit equity due to its shortfall in sales tax revenues.

  4. BlancheattheDubois says:

    Actually Sound Transit has the authority to use a $2/head employer tax – it would have to be voter approved.

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  6. Curlove says:

    Fabulous article! The best example of TOD leadership is the community leadership demonstrated on Capitol Hill throughout the Urban Design Framework process. The Champion group of community leaders are a model for any community that wants to embrace the opportunities of equitable development around transit.

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